Portfolio Management - Rate of Return Basics

The Required Rate of ReturnThe required rate of return is the nominal rate of return that an investor needs in order to make an investment worthwhile.

This return varies over time and is comprised of the following:

Real risk-free rate

Inflation premium

Risk premium.

Real risk-free rate of returnThe real risk-free rate of return (Rf) is the minimum return an investor requires. This rate does not take into account expected inflation and the capital market environment.